Thursday, August 4, 2011

Skidelsky versus Selgin on Keynes and Hayek

This BBC audio file has been edited, and we do not have the whole debate here. The entire unedited podcast of the debate will be available next week on the LSE events website.

Professor George A. Selgin was the main defender of Hayek, which was a good choice by whoever organised this debate. I rather like Selgin’s work on fractional reserve banking; he is an intelligent libertarian, and is in a class of his own, over and above other Austrians, quite frankly.

(i) Hayekian liquidationism was tried in Weimar Germany from 1931–1933: this caused a severe deflationary depression causing untold suffering and bringing the Nazis to power:

“Economic breakdown [sc. during the Great Depression] led to political upheaval which in turn destroyed the international status quo. Germany was the most striking example of this complex interaction. Without the depression Hitler would not have gained power. Mass unemployment reinforced all the resentments against Versailles and the Weimar democracy that had been smouldering since 1919. Overnight the National Socialists were transformed into a major party; their representation in the Reichstag rose from 12 deputies in 1928 to 107 in 1930. The deflationary policies of the Weimar leaders sealed the fate of the Republic” (Adamthwaite 1977: 34).

By failing to respond to these points in any coherent way, the apologists for Hayek in this debate clearly lost it in my mind. I think Skidelsky swept the floor in the first few minutes, and there was not much left for him to do but show why the Austrian business cycle theory (ABCT) is false to complete his demolition of them, though Skidelsky unfortunately failed to do this. Later in the debate Skidelsky (19.30) points out that without economic security, when millions of peoples’ lives are destroyed by deflationary depression, our political freedom is endangered: and he is right.

(2) Jamie Whyte’s Response to Skidelsky (7.02–)
Whyte’s talk is a feeble “rebuttal” to Skidelsky. Let’s take some of his outright errors:

“since Keynesian policies were last popular and unsuccessful in the 1970s…”

This strange statement demonstrates both ignorance and factual error: if Whyte means that Keynesian stimulus was unsuccessful during the severe negative supply shocks under the first and second oil crises, he has shown basic ignorance of what Keynesian policy even is. You do not use stimulus in a period where very severe supply shocks have occurred: in these circumstances demand contractions are in order. And when the oil crises ended Keynesian stimulus was used quite successfully in a number of countries, so even here Whyte is wrong. If Whyte wants a successful example of Keynesian stimulus after the second oil shock, he needed to look no further than Reaganomics after 1982.

“… as it did during the Great Depression, the Keynesian policies followed by the Hoover and Roosevelt administrations, which were supposed to shorten the length of the downturn, caused it to be the longest in known history” (10.11– )

This is one of the most pathetically false statements in the whole debate. Why? What we call the Great Depression in the US was technically the severe contraction that occurred from 1929–1933 under Hoover.

While it is true that Hoover was a proponent of a type of corporatism and adopted a number of limited interventions from 1929–1933, Hoover did not engage in any remotely effective Keynesian countercyclical fiscal policy, as I have shown here:

The idea that Hoover adopted “Keynesian policies” is pure nonsense, an insult to the intelligence.

When Roosevelt came into office a weak recovery was just beginning. Roosevelt’s policies stabilised the financial system, created employment for considerable numbers of people and, to the extent that he tried countercyclical fiscal policy, he was successful. Of course, not all aspects of the New Deal were constructive. It was, to some extent, the result of the corporatist mentality that had permeated the American business elite in the 1920s. But it also had very beneficial aspects, and fiscal policy was one of them. The US experienced a recovery and falling unemployment in every year of Roosevelt’s administration until 1937, when Roosevelt foolishly listened to the advocates of austerity and tried budget balancing. The effect was to plunge the economy back into recession in 1937. The real failure of Roosevelt’s New Deal was simply that expansionary fiscal policy was not great enough to stimulate the economy back to full employment. Roosevelt was too timid.

Whyte’s claim that Keynesian macroeconomic policy has insufficient empirical evidence is rubbish. Virtually every Western country on earth used Keynesianism from 1945–1973, and we had the most prosperous period in modern human history in terms of unparalleled real GDP growth, productivity growth, and real wage growth.

(3) Selgin’s Remarks

Curiously, Selgin concedes that Hayek eventually supported quantitative easing and monetary stabilisation as a policy needed in the early 1930s. What, then, becomes of the need to liquidate malinvestments required by Hayek’s trade cycle theory? Did Hayek think that the malinvestments had cleared by 1930? Was, then, all the suffering after 1930 unnecessary?

Selgin presents a caricature of Keynes at 17.20 onwards, claiming that Keynes advocated injecting money into an economy by building pyramids or digging holes in the ground. Keynes, of course, did not seriously advocate this: he said that if you could find nothing else of use to do with the money, then (facetiously) said you might do those things.

Selgin’s main point in his talk is little more than an attempt to revive the moribund Austrian business cycle theory (ABCT). This theory in the form developed by Hayek relies on the Wicksellian natural rate of interest, and posits that when the bank rate of interest falls below the unique natural rate of interest, unsustainable malinvestments occur that lead to a bust (for a summary of ABCT, see Garrison 1997).

However, Piero Sraffa had already demonstrated in 1932 that outside of a static equilibrium there is no single natural rate of interest in a barter or money-using economy, and Hayek never really addressed this problem for his trade cycle theory.

There is in fact one Austrian honest enough to admit how damaging Sraffa’s critique of Hayek was: Robert Murphy. Murphy points out the following:

“In his brief remarks [in Hayek 1932], Hayek certainly did not fully reconcile his analysis of the trade cycle with the possibility of multiple own-rates of interest. Moreover, Hayek never did so later in his career. His Pure Theory of Capital (1975 [1941]) explicitly avoided monetary complications, and he never returned to the matter. Unfortunately, Hayek’s successors have made no progress on this issue, and in fact, have muddled the discussion. As I will show in the case of Ludwig Lachmann—the most prolific Austrian writer on the Sraffa-Hayek dispute over own-rates of interest—modern Austrians not only have failed to resolve the problem raised by Sraffa, but in fact no longer even recognize it.

Austrian expositions of their trade cycle theory never incorporated the points raised during the Sraffa-Hayek debate. Despite several editions, Mises’ magnum opus (1998 [1949]) continued to talk of ‘the’ originary rate of interest, corresponding to the uniform premium placed on present versus future goods. The other definitive Austrian treatise, Murray Rothbard’s (2004 [1962]) Man, Economy, and State, also treats the possibility of different commodity rates of interest as a disequilibrium phenomenon that would be eliminated through entrepreneurship. To my knowledge, the only Austrian to specifically elaborate on Hayekian cycle theory vis-à-vis Sraffa’s challenge is Ludwig Lachmann.”
(Murphy, “Multiple Interest Rates and Austrian Business Cycle Theory,” pp. 11–12).

But even Lachmann’s (1994: 154) proposed solution does not work:

“Lachmann’s demonstration—that once we pick a numéraire, entrepreneurship will tend to ensure that the rate of return must be equal no matter the commodity in which we invest—does not establish what Lachmann thinks it does. The rate of return (in intertemporal equilibrium) on all commodities must indeed be equal once we define a numéraire, but there is no reason to suppose that those rates will be equal regardless of the numéraire. As such, there is still no way to examine a barter economy, even one in intertemporal equilibrium, and point to ‘the’ real rate of interest.”
(Murphy, “Multiple Interest Rates and Austrian Business Cycle Theory,” pp. 14).

The Austrian business cycle theory is false, as I have shown here in numerous posts:

This is not, however, any “refutation” of Sraffa. I don’t deny that Hayek’s business cycle theory uses Wicksellian monetary equilibrium theory, nor did Sraffa. Sraffa already admitted that a unique natural rate would exist in an imaginary, fantasy world of static equilibrium or what Mises later called his Evenly Rotating Economy [ERE]. But a unique natural rate in static equilibrium is irrelevant to the real world. The “unique natural rate of interest” in a growing money-using economy or even a growing barter economy does not exist. Therefore, in the former case, there is simply no natural rate the bank rate can equal to allegedly prevent the cycle effects from happening.

What is particularly peculiar is that Selgin is an advocate of free banking: a financial system where banks have the power to create fiduciary media over and above the stock of commodity money. On a purely logical level, if Selgin advocates the Austrian business cycle theory (ABCT), then his support for a free banking system would (on the logic of ABCT) be a recipe for perpetual malinvestment!

Selgin also complains that low interest rates in the US fuelled the bubbles in the 1990s and 2000s: but he totally ignores the role of effective financial regulation in preventing the flow of credit to speculative investments which cause bubbles. When many nations dismantled the previous system of effective financial regulation in the 1980s and 1990s, this is precisely when asset bubbles and financial instability emerged again in Western economies.

Selgin makes the truly absurd claim that “there’s been no episode of a depression cured by fiscal expansion” (33.09). Jamie Whyte makes the same ignorant statement: he claims “the Keynesians’ position has been tried many times and it doesn’t work” (39.11). Really?

What on earth do Selgin and Whyte think happened in the US, and many other countries, in 1939–1945? Now in these years we were driven by the crisis of WWII to have wasteful command economies driven into massive fiscal expansion by war, but this episode showed us beyond any shadow of a doubt that massive fiscal expansion cures depression.

What is a tragedy is that in the 1930s and even now we are unable to have government spending on the same scale required, in constructive public works programs, infrastructure and social spending, jobs programs, and R&D outlays, to stimulate our economies back into full employment.

When Selgin complains that the banks are dysfunctional, he is of course right. Selgin is also right in railing against the crony capitalist bailout of America’s banks by Bush in 2008. What he ignores is that progressives, Post Keynesians, and even many New Keynesians did not support the form in which the bailout took: instead, they proposed a very different type of bailout to clean the financial system up and re-regulate it effectively.

What was badly needed in his debate was a clear Post Keynesian set of policy solutions. First, Post Keynesians already have a theory to explain the type of cycle that plunged us into the crisis in 2008: this is Hyman Minsky’s financial instability hypothesis, a far more convincing explanation of many business cycles, where asset bubbles and excessive private debt are driving the boom. Hyman Minsky’s financial instability hypothesis theory has been developed by the Post Keynesian Steve Keen, and by the heterodox economist Richard C. Koo (in the context of Japan’s lost decade).

What was required in 2008-2009 was a bailout that also cleared the banks of bad assets and non-performing loans without collapsing the economy, as in, for example, the Swedish model of fixing their financial system in the early 1990s:

In comments below (on this post), Selgin endorses a similar type of intervention to stabilise the financial system that could have been used in 2008, and in this he might very well agree with James Galbraith. In this video below (from 1.50 minutes), Galbraith tells us what should have been done in 2008: a pass-through receivership for the major banks by federal regulators.

Post Keynesians would go further: we also need to reduce the unsustainable level of private debt. This might even require writing off or restructuring a great deal of mortgage debt, credit card debt, and personal and business debt (the central bank’s power to create money can be used to protect depositors and other creditors, where necessary, to prevent catastrophic bankruptcies of creditors). After the issue of excessive private debt has been addressed, more Keynesian stimulus on a large scale is needed, as well as employment programs to deal with unemployment directly.

All in all, a good debate, but there were many issues that could also have been raised. In my view, the Keynesians won.

Selgin tells us that the solution he wanted in 2008 was to “liquidate Bear Stearns, liquidate Fannie Mae and Freddie Mac. Liquidate, in short, the whole sub prime apparatus … and, yes, that would have meant letting insolvent banks … go bust.”

In other words, he wanted to see the financial sector collapse, and this would have plunged the world into a deflationary depression. Since Selgin’s Austrian trade cycle theory (ABCT) is incoherent, his economic justification for such a collapse is non existent ...

I was wrong. Due apologies to Professor Selgin.

George Selgin has corrected me in comments below: he did not support a financial sector collapse in 2008 by these remarks, but instead advocates a policy something like the Swedish bailouts of early 1990s, as well as the normal method by which the FDIC deals with insolvent banks: allowing deposits to be “guaranteed by the government, the banks are then liquidated, shareholders wiped out, senior management fired, assets than sold off to pay for the losses. Whatever is left over goes to the bondholders.”

In urging this, I can only agree completely. In fact, I note that James Galbraith supported almost the same policy, in the video above.

BIBLIOGRAPHY

Adamthwaite, A. P. 1977. The Making of the Second World War, Allen & Unwin, London and Boston.

70 comments:

Could you do a post on what caused the German hyperinflation? I can't seem to be find an explanation anywhere. It might help in debunking the inevitable inflation = Weimar and Zimbabwe response to any suggestion of government counter-cyclical deficit spending.Was it the the government? Was it the private banks?What happened?

(1) a supply shock caused by WWI and the loss of productive capacity and output, made worse by the occupation of the Ruhr Valley in 1923;(2) huge war reparations and budget deficits (in 1919, for example, the German budget deficit was perhaps as high as 50% of GDP); and(3) exchange rate collapse.

It was a combination of conditions, in a highly unusual situation. Of course, excessive government deficits contributed, but no modern Western nation is like Weimar Germany - the comparison between, say, the US today and Weimar Germany is an utterly nonsensical one.

I must thank Lord Keynes for thinking me a worthy representative of Hayek in the recent debate. But I must also add that as such I could hardly avoid advocating the Austrain theory of the business cycle.

Regarding his comments about my position having been one favoring a financial collapse, in fact it is no such thing: funnily enough, I just sent a comment to a pro-Keynesian blog that similarly misconstrued my stand, in which I referred to precisely the same "Swedish Model" alternative Lord Keynes endorses above:

"I certainly would have to be an insensitive ogre if I had believed that insolvent banks should simply have been allowed to collapse, leaving all of their depositors in misery. But this is not the only alternative to bailouts, and it certainly isn’t what I was defending. The alternative I had in mind was nicely summarized last spring by Barry Ritholz in a blog referring to the situation then in Ireland:

'The bailouts in the US are instructive. Giving banks money to rescue themselves from their own actions does not lead to a long term healthy economy in a capitalistic system. Banks take advantage of the easy money, leverage themselves up all over again, and produce record profits.

'But the banks are a negative, not positive, contributor to the economy post bailout. Capitalism isn’t a charity, and this was precisely what the US should have expected (and what a few people warned against). The risk reappears, no lessons are learned, moral hazard gets writ ever larger.

'The alternative to the Japanese approach, adopted in part by the US, is the Swedish system. This is what the US FDIC does: Insolvent banks have their deposits guaranteed by the government, the banks are then liquidated, shareholders wiped out, senior management fired, assets than sold off to pay for the losses. Whatever is left over goes to the bondholders.

'That is roughly what was done with General Motors. The GM prepackaged bankruptcy saved what was worth saving, reorganized the company, and allowed it to move forward.

'This is what the US should have done with their own banks, but refused to. Both the Bush and Obama White Houses ceded their decision making on this issue to the former head of Goldman Sachs (Hank Paulson as Bush Treasury Secretary) and Citigroup Director and prior Co-Chairman of Goldman (Obama’s Economic advisor Robert Rubin).'

In pretending that the only alternative to bailing out insolvent banks is one that must ruing millions of innocent depositors, you unwittingly play into the hands of irresponsible bankers, supporting handouts to them that ultimately hamper recovery, thereby ultimately making the very people with whom you claim to empathize worse off."

***

The full exchange, which is ongoing, is here:http://www.taxresearch.org.uk/Blog/2011/08/04/keynes-v-hayek-and-why-keynes-had-to-win/comment-page-1/#comment-601782

"Regarding his comments about my position having been one favoring a financial collapse, in fact it is no such thing: funnily enough, I just sent a comment to a pro-Keynesian blog that similarly misconstrued my stand, in which I referred to precisely the same "Swedish Model" alternative Lord Keynes endorses above:"

Well, apologies are in order.

I will change my comments above with a note added at the end, clarifying your position.

Allow me also to clarify a couple more points. First, I have long believed that the ABCT explains put a relatively small part of the crisis of 1930-1933, the Great Contraction (of spending) having made the crisis far more severe than a mere Austrian correction could account for. However, I happen to believe that the ABCT is a much better fit for the recent boom bust. This isn't to deny a role for a spending collapse in the recent crisis, or to deny Lord Keynes's point that other financial measures (I would blame not "deregulation" but the government's positive encouragement of the subprime lending market) played a major part in giving shape to the particular boom-bust pattern that was experienced. Every cycle is unique, after all.

Finally, regarding Lord Keynes' question, "What on earth do Selgin and Whyte think happened in the US, and many other countries, in 1939–1945?," my own answer (I cannot speak for Jamie) is that I follow Bob Higgs's argument countering the conventional (Keynesian) wisdom concerning that episode: http://www.independent.org/newsroom/article.asp?id=138

I have listened now to Galbraith's interview, and yes, what he recommends is precisely what I had in mind in claiming that the banks should have been liquidated. Moreover, his general arguments favoring his approach to what actually has been done are my arguments also.

I do not see how Robert Higgs has refuted the proposition that fiscal expansion 1941-1945 eliminated the depression.

I don't claim that "prosperity had returned during the war" - of course there were price controls and rationing.

The command economy largely eliminated unemployment and production surged: if a command economy can do this, then there is no reason why a peacetime Keynesian stimulus with socially useful spending programs by government cannot do the same thing.

If fact, after the war Keynesian macroeconomic managment was used in virtually every capitalist country to maintain high employment and growth: this period (1945-1973) is now called the golden age of capitalism.

"I have listened now to Galbraith's interview, and yes, what he recommends is precisely what I had in mind in claiming that the banks should have been liquidated. Moreover, his general arguments favoring his approach to what actually has been done are my arguments also."

Well, that is a very interesting point of agreement. James Galbraith sees himself in the American Institutionalist tradition, and also has very close links with the Post Keynesians. Post Keynesians I have seen support his views on what should have been done in 2008 during the financial crisis.

But this US FDIC solution to insolvent banks still constitutes a type of bailout, does it not, in that depositors are "bailed out"?

I don't concern myself with which schools others identify themselves with in deciding whether to agree with them or not.

As for bailouts, there's a big difference between recognizing the need to honor explicit guarantees made to depositors and supporting bailouts of bank shareholders and other creditors. Nevertheless I am for getting rid of all guarantees (and hence all bailouts): I think deposit insurance is a very unfortunate innovation, and one that also tends to prop up inferior banks at the expense of more responsible ones.

Regarding your arguments about Keynesian economics and WWII, you (and Skidelsky) conveniently overlook how Keynesian economists at the time universally anticipated major unemployment following postwar demobilization, with the inevitable decline in government spending relative to GNP that would accompany it. Now, forgetting this embarrassing evidence contradicting their theories, they pretend that policies remained just as expansionary after the war as they were during it, and thus manage to congratulate themselves for the very employment that they once were so cock-sure would not take place!

In point of fact (and as Higgs documents), Truman, far from having implemented his own postwar New Deal, did just the opposite, encouraging (admittedly as part of his Cold War strategy) a return to relatively pro-market policies.

"Regarding your arguments about Keynesian economics and WWII, you (and Skidelsky) conveniently overlook how Keynesian economists at the time universally anticipated major unemployment following postwar demobilization, with the inevitable decline in government spending relative to GNP that would accompany it."

When you say economists expected "major unemployment following postwar demobilization", I think what you mean to say is that you think "Keynesian economists at the time universally anticipated a return to depression or stagnation with high unemployment following postwar demobilization"?

Well, there was a downturn in 1945 were GDP fell by 12.5% between February and October:

“The decline in government spending at the end of World War II led to an enormous drop in gross domestic product making this technically a recession. This was the result of demobilization and the shift from a wartime to peacetime economy. The post-war years were unusual in a number of ways (unemployment was never high) and this era may be considered a ‘sui generis end-of-the-war recession’.”http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

This was a totally atypical downturn as the wartime command economy was dismantled, and resources were freed up for reconversion to a peacetime consumer economy.

The question that Keynesians back then asked: would this conversion be followed by long term depression or stagnation? Some got it wrong (e.g., Samuelson), others got it right (e.g., Keynes himself).

In 1943, Keynes was giving a lecture at the Federal Reserve and was asked by Abba Lerner about the possible economic problems of the post-war period. Keynes’s reply is significant:

“Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem.”

Of course, Keynes could have added: Americans had accumulated vast savings during the war: some $100 billion by 1944 including $43 billion in savings and money.

But American consumers could not spend the money on consumption during the war, owing to shortages, rationing and the fall in production of consumer goods. When the war ended this led to a massive surge in consumer demand. As any Keynesian would say: effective demand drove output and employment leading to the first post-WWII boom from 1945-November 1948, as I have argued here:

"In point of fact (and as Higgs documents), Truman, far from having implemented his own postwar New Deal, did just the opposite, encouraging (admittedly as part of his Cold War strategy) a return to relatively pro-market policies."

(1)When you say "relatively pro-market policies", relative to what?

Relative to what preceded it, America had the most government intervention in the economy ever from 1945-1980s.

(2)To be honest, I rather enjoy Higgs' work, but when I look at his data I don't draw the same conclusions he does or find weaknesses.

Just one significant example: there was a very sharp rise in government spending from 1948 to 1953.

Some of the increases from 1950–1953 were, of course, related to the Koran war, but also to new social, welfare and military programs that were enacted under Truman. Government spending in both absolute terms and as a percentage of GDP surged from 1948 to 1953, fell slightly from 1953–1954 as the Korean war ended, but remained between about 25% and 30% of GDP throughout the classic era of Keynesian economics (1945–1973), as can be seen here:

US Government Spending as Percent of GDP: 1903–2010.http://www.usgovernmentspending.com/us_20th_century_chart.html

Yet the economy continued to boom despite the historically unprecedented levels of government spending in absolute terms and as a percentage of GDP.

For a history of how Keynesianism was implemented in the early post-WWII years:

"When you say economists expected "major unemployment following postwar demobilization", I think what you mean to say is that you think "Keynesian economists at the time universally anticipated a return to depression or stagnation with high unemployment following postwar demobilization."

Yes; and yes, I had Samuelson and other "Keynesians" rather than Keynes himself in mind in mind in what I stated. Of course, Keynes didn't necessarily share their beliefs. Then again, he might well not share the beliefs of those who today clamor for more stimulus spending despite exploding government debt and rising prices.

Concerning Truman's relatively pro-market policy I refer you again (now that I know you like him) to Higgs--this time his paper on the role of changing "regime uncertainty" in the depression and recovery: http://journals.cambridge.org/action/displayFulltext?type=1&fid=4129696&jid=JEH&volumeId=59&issueId=03&aid=4129688

Concerning the chart: Despite the very definite upward trend of government spending after WWII it shows clearly the tremendous drop of spending/GNP at war's end. This is the drop that had (more simple minded) Keynesians fearing a major slump after the war. Evidently, the quick recovery of employment had nothing to do with a like return to wartime spending levels.

There was undoubtedly some degree of "regime uncertainty" caused by the unprecedented interventions of Roosevelt's New Deal which had never been seen before in America.

In fact, when Keynes visited America in 1934, he saw first hand something that would confirm Higg's view:

"[sc. Keynes] acknowledged that some aspects of the New Deal had created a crisis of confidence in the business community, but turned this into an argument that the government should increase its emergency expenditure to $400m. a month, while trying to reassure business that 'they know the worst' and discontinuing some aspects of the objectionable policies of the National Recovery Administration.

Now the trouble is this: many aspects of the New Deal had little if anything to do with Keynesianism. The New Deal came out of different ideas and types of thinking, and one of these was the sort of American corporatism/cartelism that Hoover supported to some extent.

Is this really a strong argument against Keynesian countercyclical fiscal policy in periods of severe depression? Not really.

The solution to Roosevelt's troubles was simply stopping his anti-business rhetoric and ending many of his counterproductive programs, just as Keynes advised.

Moroever, there is a simple question: do we know of any private businesses or capitalists who refused to accept the government money in these years? Or the money paid to workers by government?

I doubt it. Capitalists want to make a profit: in the end, they will take the government's money and increase production when orders came flooding in.

If Roosevelt's countercyclical fiscal policy had been large enough, private enterprise - whatever the uncertainty caused by other New Deal policies - would have taken the money happily and production and private employment would have surged, ending the high involuntary unemployment in these years.

One other point: Keynes was not some kind of Marxist urging the abolition of capitalism. In fact, on his trips to America he tended to mix easily with bankers and businessmen who, by and large, did not display inveterate hostility to him.

I'm aware of Keynes's harsh attitude to the New Deal, and of his not having been an anti-capitalist--not enough for Bloomsbury anyway! I had in fact wanted to point the former fact out to Skidelsky at the debate when he so casually dismissed those of us who believe that the New Deal (or important parts of it) hampered U.S. recovery.

Part of the problem in this discussion--I haven't been able to steer clear of it--is that I find that in defending my stance against Skidelsky's, I am not necessarily trying to take on Keynes. Keynes was not such a Keynesian as Skidelsky made him out to be. Indeed, I said as much in a remark edited from the debate, when I pointed out that, given his consistent opposition to inflation and his fiscal conservatism (for Keynes was in fact a fiscal conservative, favoring deficit spending only in times of unemployment), Keynes himself might well have objected to much of the stimulus spending now advocated in his name.

"Concerning the chart: Despite the very definite upward trend of government spending after WWII it shows clearly the tremendous drop of spending/GNP at war's end."

Yes, it does. But then the technical "depression" in 1945 where GDP fell by 12.5% is what happened when you cut the wartime spending.

It was a wholly necessary adjustment, asresources were shifted and freed up for reconversion to a peacetime consumer economy.

Evidently, the quick recovery of employment had nothing to do with a like return to wartime spending levels.

Of course. But the level of government spending stabilised at an historically unprecedented level after the first peacetime postwar recession from 1948-1949 and remained there for the golden age of capitalism.

If Samuelson really believed that the government had to keep spending at the % of GDP done during the war, then he was wrong.

"I had in fact wanted to point the former fact out to Skidelsky at the debate when he so casually dismissed those of us who believe that the New Deal (or important parts of it) hampered U.S. recovery."

Well, Skidelsky was wrong to "casually [dismiss] those ... who believe that the New Deal (or important parts of it) hampered U.S. recovery". You were treated unfairly, in that respect.

If Keynes thought the NRA had some "objectionable policies", modern Keynesians should think carefully about why he said that.

There is an unreasonable tendency to defend Roosevelt and the New Deal in every aspect, by some Keynesians that displays poor judgement.

That the New Deal was a mixed bag with some pernicious elements can be conceded without doing any harm to fundamental Keynesian theory, in my view.

To that extent, I welcome critiques of the New Deal from Higgs and others, though I do not think that all criticisms are convincing.

"Yes: Henry Ford, for one, wanted nothing to do with Roosevelt's "Blue Buzzard<' and was willing to pay the price of losing all his government orders. "

Fair enough: I'm wrong in saying it never happened. Very good exmaple. Are there any other examples?

I doubt, however, whether this would have happened on a large enough scale to have a significant effect. Henry Ford's competitors just benefited as his expense: the government's dime was good enough for them.

I just noticed that I let slip your remark that during WWII "The command economy largely eliminated unemployment and production."

Higg's point is that this sort of "production" and employment creation scarcely deserves to be regarded as signifying recovery: the production in question did not improve people's standard of living, while the employment consisted for many of a particularly hazardous form of temporary enslavement.

Recovery ought to refer to recovery of an economy's capacity for satisfying human wants.

"Higg's point is that this sort of "production" and employment creation scarcely deserves to be regarded as signifying recovery: the production in question did not improve people's standard of living, while the employment consisted for many of a particularly hazardous form of temporary enslavement."

Of course, wartime production was unpleasant, hours were long, hardship was severe for many people, and consumer godos were scarce: but we are talking about the principle of stimulative fiscal policy and employment programs to raise income and employment.

Modern Keynesian do not advocate some harsh wartime command economy.

One of the best ways to employ people in America today is public works.

The US public infrastructure is crumbling.The American Society of Civil Engineers (ASCE) has been warning about it for years:

The nation's roads, bridges, levees, schools, water supply and other infrastructure are in such bad shape that it would take $2.2 trillion over five years to bring them up to speed.

Of course we shall never really know what either Keynes or Hayek really would have said about the situation today. But were I to venture a guess it would be that they have found more in common with each other than with any of their more fervent admirers.

On a purely facetious level: if some people did derive utility from the bridge when built, subjective utility preferences are being satisfied, are there not?

There are many commodities only consumed by a very small number of people and that only satisfy subjective utility preferences for a very, very small number of people, say, like corporate jets and other luxuriy products.

Is this a serious argument for abolishing, or stopping the private sector from producing, corporate jets?

You seem to focus excessively on 'Keynesian' government spending, asserting that Keynesians simply want to 'ejaculate' (to quote the TPA member) public money into anything, whether it is an insolvent institution or a white elephant. Of course this is untrue.

Keynes' main objective was to stabilise the economy, not simply to stimulate it in a downturn, which is why he advocated:

- Low long term interest rates to prevent savings from running ahead of investment.

- Banning loans to speculators (tell me with a straight face 2008 would have happened with this in place).

- Capital controls and possible exchange rate stabilisation.

In this sense, the Keynesian diagnosis of the crisis was that interest rates were too high rather than too low, combined, of course, with financial deregulation.

I think you are pursuing a straw man/red herring when you criticise countercyclical fiscal policy, not least because Hayek himself supported public works projects.

One more thing before quitting time: "(ii) Hayek changed his mind late in life, and admitted he had been wrong in supporting the effects of a “secondary deflation” after 1930."

Hayek didn't "change his mind late in life." He changed in in 1931--that is, 5 years before the appearance of the GT and while the spending collapse was still in progress! You can hear me quoting a passage from his 1933 essay "Saving" to prove this point during the debate; and you may examine the Preface of the 2nd (1935) edition of Prices and Production (which I also referred to, but which was edited out), for more evidence.

Now, if (as Skidelsky suggested) one is only allowed to appeal to Hayek's pre-1931 utterances in assessing the merits of his versus Keynes's views on boom and bust, must Keynesians then not also limit themselves to defending what Keynes had to say in his Treatise on Money, which he subsequently repudiated, and in prior writings (including the aggressively quantity-theoretic Tract on Monetary Reform), setting the entire General Theory aside?

As I remarked in another excised part of the debate (one day I must ask the BBC to supply the entire tape), Keynes is often credited for having said, in response to someone chastising him for having had a different view in the past, "Sir, when the facts change, I change my mind. What do you do?" (The attribution, I noted in passing, is almost certainly false). Well, I said, when the facts changed, Hayek also changed his mind. What's sauce for the goose... .

"Hayek didn't "change his mind late in life." He changed in in 1931--that is, 5 years before the appearance of the GT and while the spending collapse was still in progress! "

Then I have made an error, and will be happy to correct it.

When I said "late in life" I was thinking of the interview he gave in the 70s published in F. A. Hayek 1978. New Studies in Philosophy, Politics, Economics and the History of Ideas, Routledge & Kegan Paul, London:

“Although I do not regard deflation as the original cause of a decline in business activity, such a reaction has unquestionably the tendency to induce a process of deflation – to cause what more than 40 years ago I called a ‘secondary deflation’ – the effect of which may be worse, and in the 1930s certainly was worse, than what the original cause of the reaction made necessary, and which has no steering function to perform. I must confess that forty years ago I argued differently. I have since altered my opinion – not about the theoretical explanation of the events, but about the practical possibility of removing the obstacles to the functioning of the system in a particular way” (Hayek 1978: 206).

With that, I must retire for sleep!I will have to publish any comments tomorrow.

Cahal, when Keynes in effect argued that spending on pyramids is capable of serving the goal of combating unemployment, although it would be better to spend on needed public works, he (quite unintentionally) opened the floodgates to every sort of irresponsible pork-barrel endeavor, as politicians quickly and quite naturally seized upon his argument as justifying all manner of reckless spending, including bailouts. I'm pretty sure that Keynes today would be crying foul. But it cannot be gainsaid that his arguments helped inspire new attitudes toward government spending that helped bring us to the present fiscal and economic impasse. On this influence of Keynes's thought I especially recommend Buchanan and Wagner's Democracy in deficit: http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php%3Ftitle=1097&Itemid=27

Thanks for the kind remark, LK: and now it's really home for me at last!

"On a purely logical level, if Selgin advocates the Austrian business cycle theory (ABCT), then his support for a free banking system would (on the logic of ABCT) be a recipe for perpetual malinvestment!"

I do think that is the central paradox of the ABCT -- assuming it were true (which it is not), it could only work if capitalist banks did not act like, well, capitalists...

Another wonderful paradox is seeing rabid free-market capitalists arguing for state regulation of an industry, namely the imposing and enforcing of a 100% gold reserve policy on banks. This in order to stop capitalist banks acting like capitalists by seeking to make a profit by "artificially" lowering interest rates to meet consumer demand...

Iain, not all of those who see merit in the ABCT also argue for 100% reserves: in fact, only a minority of self-styled Austrian economists, all followers of Murry Rothbard, take the 100% reserve view. They don't consider doing so an exception to their general stance against regulation, however; they consider fractional reserve banking a form of fraud, which should therefore be outlawed like any other form.

I for one think the Rothbardian view is baloney, and have actually spent more time attacking it than I have spent responding to post-Keynesians, as Lord Keynes can affirm.

It appears to me that if you really want to defend free banking without running into the problem of ABCT, why not just acknowledge the problems with the Haykeian trade cycle theory, dispense with the troublesome parts of it, and adopt a modified version: just say that if fiat money and central banking inflate the money supply, then this can lead to asset bubbles in financial markets or real assets (like real estate) causing an unsustainble boom?

Is there, for example, nothing you find convincing in Irving Fisher's debt deflation theory or Hyman Minsky's development of that theory?

"Whyte’s claim that Keynesian macroeconomic policy has insufficient empirical evidence is rubbish. Virtually every Western country on earth used Keynesianism from 1945–1973, and we had the most prosperous period in modern human history in terms of unparalleled real GDP growth, productivity growth, and real wage growth."

Neither Mises nor hayek consistently argued against fractional reserves. The contrary claim is among the Rothbardian myths I've tried to counter. But if either had agreed with Rothbard, he would also have been wrong.

The correct interpretation of the ABCT is, in any case, not that unsustainable booms happen when banks issue fiduciary media but that they happen when the extent of money creation is such as to exceed the prevailing demand for real balances and thereby reduce interest rates below their Wicksellian "natural" levels.

As for Minsky and Fisher, I have never been fond of the arguments of the first, because they seem to see booms as driven by excesses of the private banking system, overlooking central banks' much greater potential for fueling them. As for Fisher, I don't object to his theory, so far as it goes. I can't repeat enough that I reject Rothbardian apologies for demand-driven deflation. I am, to repeat, a stable MV person, as was Hayek from '31 onwards.

"The correct interpretation of the ABCT is, in any case, not that unsustainable booms happen when banks issue fiduciary media but that they happen when the extent of money creation is such as to exceed the prevailing demand for real balances and thereby reduce interest rates below their Wicksellian "natural" levels.

Would 100% reserve banking prevent Austrian business cycle from occurring? I don't see any real cost other than finding a way to implement it without deflating the hell out of the economy. What am I missing? Is fractional reserve free-banking superior because it can respond more efficiently to demand for credit? What are the constraints in free-banking that prevent it from causing an Austrian business cycle or some type of bubble?

To me the definition of certain crimes are somewhat contextual. Whether or not fractional reserve banking is a fraud kind of depends on its consequences... If they are constructive, I have trouble considering it a fraud, if the are clearly and demonstrably destructive it would be much easier to consider it fraudulent.

Having read your arguments about whether or not Hoover's policies were Keynesian, I am happy to concede that his deficit spending was insufficient to satisfy a Keynesian. So I promise never again to say Hoover followed Keynesian policies. However, it is irrelevant to the real issue, which is whether deficit spending reduced or lengthened the downturn in the 1930s. And, again, you seem to have extraordinarily low standards of proof. For example, in your post on the Hoover issue, you claim that,

"Far from disproving that Keynesian stimulus doesn’t work, Hoover’s spending demonstrates that too little spending in the face of an economic catastrophe is a recipe for disaster."

How can a single case of a small increase of spending combined with a continued downturn provide a demonstration of the Keynesian theory?

If you want an outline of how Keynesian macroeconomic management gave prosperity to America in the early post-war years from 1945-1960 - by maintain high employment and aggregate demand - with the empirical evidence given, see here:

(2) China 2008-2009In the face of a massive collapse in their export-led growth economy, what did China do?They implemented a massive $586 billion dollar Keynesian stimulus – and then got a very impressive recovery.Does that sound like a “failure”?

(4) Australia 2008-2010Austrlia also implemented a large Keynesian fiscal stimulus from 2008, which worked very well, and it benefited from China's stimulus as well.

(5) South Korea, 2008-2010In 2008, South Korea was quick to pass a 14 trillion won stimulus package in November 2008. It then returned to economic growth after a brief contraction in 2009.

http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=KRW

(6) Canada, 2009-2010Canada unveiled a 40 billion Canadian dollar ($32bn, £23bn) stimulus in January 2009:Growth returned in late 2009 and continues:

http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=CAD

Because of their effective financial regulation (a significant government intervention), Canada were also largely untouched by the financial crisis

(7) Sweden, 2008-2010Sweden implemented a large Keynesian stimulus in 2008 and 2009, a 8.3 billion Swedish kronor package for 2009, to complement earlier spending plans. The result?Sweden returned to good growth in 2009 and growth continues:

Well, I must tell you that is news to me. If this is true, I will be very careful not to repeat these errors in the future.

Where does Hayek endorse fractional reserve banking?

I do know there is some debate about the extent to which Mises condemned fractional reserve banking or increases in the money stock. E.g., Cachanosky's article "The Definition of Inflation According to Mises ..":

“Mises …. suggests inflation [is] … ‘an increase in the quantity of money above the market demand of money.’ Note that, under Mises’ suggested definition, not every increase in the quantity of money is inflation, only increases that exceed market demand …. [Mises] saves the term inflation for cases where the quantity of money is increasing above the market demand for money” (Cachanosky 2009: 5).

"How can a single case of a small increase of spending combined with a continued downturn provide a demonstration of the Keynesian theory? "

But it is not a single case.

Many countries in the 1930s either (1) implemented austerity and no countercyclical fiscal policy or (2) very weak expansionary policy. Countries of classes (1) and (2) had very severe depressions, with unemployment equilibria (as Keynes would say) persisting for years after the actual contraction ended.

Hoover's very small increases in government spending manifestly did nothing to counteract the real GDP contraction from 1929-1933. America was not alone in this: Canada had a similar experience.

Other nations that implemented very strong fiscal contraction and deflationary policies, such as Weimar Germany, experienced severe collapses, perhaps even worse than America.

I will start with this proposition:

Government spending cuts and severe internal wage and price deflation ended the Great Depression quickly in all countries that adopted these policies.

If this is a synthetic proposition, whose truth must been established a posteriori, then it is obviously false by the evidence of Weimar Germany.

"Where does Hayek endorse fractional reserve banking?" Hayek argues expressly the need for banks to create new loans to offset people's increased desire to hold their IOUs. See his 19333 essay on "Saving," which is (I believe) reprinted in Profits, Interest, and Investment.

Mises was woefully inconsistent on the subject of fractional reserves. The same author you mention elsewhere argues that he was in fact not opposed to them while citing other relevant discussions of his stand (among the latter I especially recommend Lawrence White's article): http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1734143

"However, it is irrelevant to the real issue, which is whether deficit spending reduced or lengthened the downturn in the 1930s."

Firstly, I think you may want to re-phrase what you say: just because there is a deficit does not mean that you have Keynesian fiscal expansion.

Ireland from 2008 onwards has had severe budget deficits - some of the worst in the EU - but not because of Keynesian fiscal stimulus: the reason is that tax revenues collapsed, even when the government was cutting spending.

Also, one might ask the question: is there any evidence that no fiscal expansion leads to a quick end to severe recessions?

Take America in the 1890s: there is no such evidence. There was either a depression or severe recession from 1893-1894 and 1895-1897.

America in the 1890s had no central bank, government spending was a very small percentage of GDP (it fluctuated between 2.55% and 3.62% in the 1890s), and governments tended to pursue austerity in times of recession. In fact, US federal government spending fell from 1893 to 1896 and fell from $465.1 million in 1893 to $443.1 million by 1896, which was obviously contractionary fiscal policy.

Was this policy a successful way of returning to the economy to strong growth and high employment quickly?

Not at all: the 1890s were a disaster, and double digit unemployment persisted right to 1898.

"Not at all: the 1890s were a disaster, and double digit unemployment persisted right to 1898."

I don't believe that available statistics, such as they are, support your claim about unemployment. See J.R. Vernon, J. Macro 1994, who puts the rates at below 10% for the entire 1890s.

In any event, what does the reference to 1893 prove? It is well known that there were serious flaws in the U.S. monetary system prior to 1914, many of which were traceable to Civil-War era interventions aimed at bolstering the market for Union bonds. Reform was badly needed; but it hardly follows that either the Fed or Keynesian demand-management policies were the only or best solution. Canada, with its less regulated private currency system, avoided the crises that plagues the U.S. before 1914, while also avoiding a banking collapse in the early 1930s.

For further details on these and other points see my paper (with Bill Lastrapes and Larry White) "Has the Fed been a Failure?," forthcoming in j. Macro.: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1713755

"According to them, wage and price flexibility allows markets to clear, and this should prevent Great Depressions from happening."

I certainly don't subscribe to the Walrasian view that prices are continuously market clearing. Nor do most members of the Austrian School (the *%&^&^! Rothbardians must again be excepted, at least when it comes to some of their treatments of deflation). Hayek, again, explicitly recognized the problem downward of price and especially wage rigidity.

So, let's not paint Austrians with the Walrasian brush. Save that for the New Classical economists, who we can all agree to disagree with!

Thank you! The references help. I'm a non-economist and am struggling to access what data is out there. I think a well designed chart of that data, which I'm trying to make, will show that as the dollar asset base we call the federal debt increases the economy expands with it and that accelerations year on year in the expansion of the asset base (debt) cause accelerations of GDP growth while contractions of the asset base result in GDP contractions. If I can make it read clearly (whatever it ends up showing) I'll send you a link.

As for J. R. Vernon, 1994. "Unemployment Rates in Post-Bellum America: 1869-1899," Journal of Macroeconomics 16: 701-714, I don't have the paper at hand. I'll have to look into what method he is using, etc. Anyway, what are his actual estimates for the 1890s? When you say "below 10%", how far below? Are we talking 8% or 9%? (which would still be fairly high).

I am sure as you know all real GNP estimates and unemployment figures in the 19th century might be challenged in some way in terms of method, accuracy etc, and are far from secure.

I have (admittedly only partially) read that and I think it is fairly weak. Politicians do not need excuses to spend money and do stupid things; they did it long before Keynes. Adam Smith, of course, commented that no government has ever paid off its debt. Blaming Keynes for irresponsible politicians is a bit like blaming Friedman for Pinochet's genocide.

We must also remember that without Keynes, FDR and others like them, the Western world was in serious danger of falling into fascism or communism. The government expansion was a reaction to the failures of free market capitalism, and it was doing pretty well until the 1980s.

The bailouts were not Keynesian; I don't think anybody invoked Keynes to justify them. I think that policymakers simply had a headless chicken reaction.

I'd say you were probably the superior debater, but yours and Whyte's misrepresentations of Keynes and Keynesians as big government, big spending bank-bailouters is at best a straw man and at worst incredibly disingenuous; it only serves to intensify existing prejudices and polarise debate, instead of bringing it to a reasonable conclusion (the implications of Keynes' policy are barely more interventionist than Adam Smith).

Cahal, I cannot entirely claim innocence on the points you raise. But I can certainly indicate the extenuating circumstance that the debate was, unavoidably, one in which Jamie and I were obliged, not merely to oppose Keynes's actual beliefs, but to oppose Skidelsky's, which were in some respects more those of a typical "Keynesian" than of Keynes himself.

As for the rest, were those who today style themselves Keynesians more prominent among persons who have long been raising a hue and cry against government profligacy and bank bailouts, I'm sure I should have been less tempted to represent "Keynesian" thinking as I did.

By the way, Cahal, as you liked Duncan's dental analogy I thought to share with you a remark I made a few days back on my own blog concerning it:

"There were times, though, when I regretted not having had the chance, or sometimes not having had the wit, to answer or answer more fully some of the arguments made on Keynes's behalf. I especially regret not having been called upon to answer Duncan Weldon's claim that Hayekians are like dentists who have nothing to offer someone who is suffering from a rotten tooth. I might then have been tempted to point out, first of all, that it was pretty cheeky for a British proponent of greater government intervention to be bringing up dentistry. But what I really wanted to observe was that it is the Hayekians who, after all, are all for pulling an economy's "rotten teeth" not only to eventually stop the pain but also to keep them from stinking it up, whereas it's the Keynesians who say, in effect, "Oh, don't worry about that tooth...just have some more candy and everything will be all better."

(In the original there's a link in the "cheeky" passage to a Guardian article concerning the nightmare that is the NHS dental care.)

What on earth do Selgin and Whyte think happened in the US, and many other countries, in 1939–1945?

A war.

Now in these years we were driven by the crisis of WWII to have wasteful command economies driven into massive fiscal expansion by war, but this episode showed us beyond any shadow of a doubt that massive fiscal expansion cures depression.

I don't think you understand that the U.S. economy actually experienced terrible austerity in this period. And we were by far the luckiest, since we weren't dying by the tens of millions.

What is a tragedy is that in the 1930s and even now we are unable to have government spending on the same scale required, in constructive public works programs, infrastructure and social spending, jobs programs, and R&D outlays, to stimulate our economies back into full employment.

That assumes there are economically useful things we could identify and spend money on in those realms.

Public works are economically useful. The private sector benefits tremendously from them, by allowing transportation of its goods and workers etc.

A public health system would in fact cut costs for business by relieving them of the burden of health care package costs for employees. One of the reasons US car manufacturing moves to Canada is that health care costs in Canada for the private sector are much less expensive.

"Sound money still means today what it meant in the nineteenth century: the gold standard.... The main thing is that the government should no longer be in a position to increase the quantity of money in circulation and the amount of [private bank-provided] cheque-book money not fully--i.e. 100 per cent--covered by deposits paid in by the public. No backdoor must be left open where inflation can slip in.... It merely helps the rulers whose policies brought about the catastrophe to exculpate themselves....

[M]ost supporters of sound money do not want to go beyond the elimination of inflation for fiscal purposes.... [T]hey do not want to prevent... [private-sector] credit expansion for the sake of lending to business.... Their idea of sound money is... with all the errors of the British Banking School.... They still cling to the schemes whose application brought about the collapse of the European banking systems... discredited the market economy by generating the almost regular recurrence of periods of economic depression. There is no need to add anything to the treatment of these problems as provided in Part Three of this volume and also in my book Human Action.... [T]he characteristic duplicity of the [central] bank policy.... [Private-sector] credit expansion... obscure[s] the fact that there prevails a nature-given scarcity of the material things on which the satisfaction of human wants depends..." --Mises

According to delong, this is an "attack on fractional reserve banking" and an advocacy of "the return to the gold standard..."

I do think that Selgin is informative and he seems to respect the other side and tries to represent things accurately. I also agree with his advocacy of FRB. Really, with a capitalist economy, to not have it, I think, is to make things deliberately more inefficient, and, to make the economy overall much more dangerous and susceptible to concentration of power. History bears out this fact (well, at least the history of the gold standard -- I'm unaware of any system that had always full reserve banking).

I also like his technique of reporting his side and leaving it at that instead of drawing out debates.

This has been an extremely enlightening back and forth. Credit to both Lord Keynes and Professor Selgin for demonstrating the nature of a truly PRODUCTIVE debate. While we are speaking of bridge building, I think economics, as a profession, could gain a lot of utility by attempting to bridge much of the gap currently separating Keynesian and Hayekian thinkers.

One qualm I've always had with the Monetary Eq approach is that it does seem to suppose investment demand is always IR-sensitive so that, in times of hoarding or increased voluntary savings (there is a distinction worth making from a FB-perspective between demanding outside money and inside (i.e. bank created) money), the demand for investment at lower IRs will be sufficient to maintain nominal spending. As one Post Keynesian, Shirley Gideon, has pointed out, it seems free bankers conflate the demand for capital and the demand for (inside) money. Conceivably, if economic conditions were dire enough, the demand for investment funds might be slacked, and this is where Government spending would seem to be required to maintain AD. (This is very much akin to the Liquidity Trap debate).

I'd love to hear both Lord Keynes and the Hayekians/Free Bankers take on this.

I should also note that, while I think this is a legitimate Keynesian objection to the workings of the loanable funds market, I nevertheless tend to fall more on the ME side of this debate for fear of the "slippery slope" of allowing the government to get its foot in the door of the market, as well as my belief much of the discoordination caused in the LF market is itself caused by Gov't and/or CB interference (See: Fannie Mae/Freddie Mac & Greenspan circa 2001-2004). Of course, Keynesian can't be blamed for all the irrationalities of Gov't, whether done in Keynes' name or not. However, they should bear some culpability for not speaking up louder against bad government/Fed policies.

As I've argued before, had Keynes known how far his followers would've taken his "General Theory," he might've put an asterisks on the cover.